Retail Hubs

Article
May 8, 2000

RETAIL HUBS

Confined to their existing infrastructure, two airports share their
renovation and expansion experiences

By Jordanna Smida, Assistant Editor

June
2000

Unlike the Pittsburghs
of the world, when it comes to concession design, most airports must work
with existing infrastructure. Both Minneapolis-St. Paul International
Airport (MSP) and Chicago O'Hare International Airport (ORD) are in an
ongoing redevelopment of their concessions programs. Creating new space,
finding unique operators, recruiting workers, and creating storage are
just a few of the challenges both airports face.

In 1995 ORD began
its Concessions Redevelopment Plan. "We initially had about 90,000-sq.
ft. of concession space and as we have redeveloped those areas, we've
also added an additional 10 to 15,000-sq. ft. of new concessional space,"
says Eric Griggs, deputy commissioner, Chicago Department of Aviation
concessions.

As one passes through
security and proceeds toward terminal one, a WH Smith and Fannie May candy
store tempt travelers among the tree-populated corridor that overlooks
the tarmac. Kites made by the American Kite Flyers Association dance on
the ceiling. As one winds through a glass corridor still overlooking the
tarmac, you enter United's Concourse B. The area is occupied by Wolfgang
Puck's restaurant and bar, which offers the coziness of a small Chicago
cafe. As one passes the Michael Jordan Golf store, their eyes are drawn
immediately to the overarching Brachiosaurus, which towers some four stories
over United's ticketing desk and the Chicago Field Museum store.

Currently, ORD has
110,000-sq. ft. of concession space that has been renovated or created
over the last four years. The latest stage of the project involves developing
about 16,000-sq. ft. of new concession space in the apex of the American
Airlines terminal area. "In the next several weeks we're taking on
the largest project that we've ever done at one time in one area,"
Griggs says.

The increase in enplanements
has been one of the driving factors behind the concession expansions.
In 1994 the airport was taking in $3.20 per enplanement. By the end of
1999 it was bringing in $4.31 per enplanement, with 2000 projected to
be at $4.46. One of the first local businesses to enter ORD was Berghoff
Cafe, a family restaurant from the city, Griggs explains.

Wolfgang Puck's was
a unique national brand that ORD brought into its concessions, he says.
"When we renegotiated the contract with Host Marriott in 1996 we
were really hard on them in terms of bringing in local flavor and also
trying to break their envelope in what they had in their particular agreement,"
Griggs says.

The airport's DBE
program has also increased. In 1995 it had 16 percent participation and
currently it's operating at 36 percent. The city's goal was 30 percent.
"So we're meeting all the benchmark criteria that we started out
with and at the same time we started to develop brands out here that bring
people into the space," Griggs notes.

North by Northwest
Farther north of ORD, at MSP, travelers can nearly exhaust themselves
with the choices available for shopping and a bite to eat in its Northstar
Crossing concessions area. Any security checkpoint winds you into the
Crossing's Minnesota Mainstreet, an area brimming with birch trees and
overarching greenery. The wide-open, woodsy space delivers a sense of
the Midwest outdoors.

Chili's Too, tucked
into the corner of the Mainstreet, greets passengers entering the gold
concourse and offers a cozy dim-lit environment for reading the morning
paper or it's "veranda" seating where customers can observe
the hustle and bustle of the airport. The Mainstreet is aligned with brands
such as Land's End and Bath and Body Works, as well as some local concepts
like Bow Wow Meow for pet-lovers and the Spirit of the Red Horse and Minnesota
store, with both offering outdoorsy retail.

A food court is tucked
away on a "side street" offering a variety of choices. Seating
overlooks the tarmac and is accompanied by a streaming waterfall.

The Split Rock Bar
& Grill represents Minnesota's Split Rock Light House that resides on
Lake Superior's North Shore. It's ambiance is dark and quiet, accompanied
by a fireplace adjacent to a wheat field mural.

Caribou Coffee, another
locally owned concept that has gone national, has locations throughout
the terminals. A popular stop for any jet-lagged traveler is Sola Squeeze,
a natural fruit and juice, food and beverage operation. For those looking
to escape from the airport environment, Lakeline Pub is located in the
Red Concourse, offering a quiet and cozy English Pub atmosphere.

One of MSP's concession
goals is to offer passengers extended customer service through business
centers and a large conference center. Four business service centers will
be located throughout the airport offering business travelers a place
to plug in their laptop and conduct calls, among other things. The conference
center offers business travelers the convenience to host meetings at the
airport, says Gordon Wennerstrom, director of commercial management and
airline affairs.

In the mid-1990s discussions
within the MSP's Department of Aviation, followed by customer research,
indicated that changes were needed to make the experience at MSP better
for passengers. Concession improvements was one of those.

"The passengers
told us they wanted more variety, more product, more brand names, and
better price-value relationships," states Wennerstrom.

MSP management traveled
to Tampa, Portland, Pittsburgh, and Orlando to view their concessions
first hand. "Portland had to do like we did," shares Joe Anderson,
MSP's retail and concessions commercial management and airline affairs.
"They had to live with the physical footprint they already had and
say, how do we make this better given the confines of this building."

In 1997 MSP began
construction on Northstar Crossing, striving for a mix of local, regional,
and national brands. "We tried to give the passenger a sense of what
Minnesota is, what the upper Midwest is... San Francisco has cable cars,
and New York City has the Empire State Building, but it wasn't a simple
thing for us. There's no land mark that stands out in people's mind. So
we tried to come up with a feel more than a landmark," Wennerstrom
says. The program received various awards from ACI, World Airport Retail
News, the Minnesota Shopping Center Association, and Shopping Center World.

As MSP continues to
build on its Northstar Crossing, which represents the entire concession
program throughout the airport, it will be expanding its Green Concourse
and adding a new North Terminal, which will become an extension of the
Minnesota Mainstreet. "About 140,000-sq. ft. will be transitioned
in the upcoming projects; 80,000-sq. ft. of that is in the existing Northstar
Crossing and about 60,000-sq. ft. is new development," explains Anderson.

Anton Airfood will
be operating the food and beverage operations in the new development,
and Paradies and CBR will operate the retail.

The Paradies Shops
will bring in retailers such as the Big Ten Store. Brooks Brothers, Necessities,
and Creative Kids Stuff will also occupy the terminal, and Travel Mart,
designed to be an airport-side convenience store, will make its debut.

Aside of the additions
and redevelopment of its concessions, MSP also has some unfinished business
to attend to with its first part of the project: removing ductwork no
longer in use. "Any building that was built in the 1960s is going
to have anything from I-beams in the wrong place to asbestos, to a million
wires that no one has a clue where they begin," Anderson states.

After MSP's Northstar
Crossing opened its last store in June of 1999 the managers had to close
four stores in order remove heating ventilation and air conditioning ductwork
that was missed in the process of redoing the infrastructure, Anderson
explains. The other end of the terminal where some ductwork still exists
will be worked on in January 2001.

Putting the money
where the mouth is
In 1996, on recommendation of the city's mayor and Airport Retail Management
(ARM), which manages ORD's concession program, the airport started its
value pricing program. "We've actually lowered the percentage that
concessionaires are paying the department. We also expect them to lower
the prices they charge and we do that based on a market-basket approach,"
explains Griggs.

The airport has outlined
parameters in each agreement to determine the market basket. Concessionaires
can shop the downtown central business district, document prices, and
the airport takes the average of the prices. Concessionaires are expected
to set their prices accordingly.

"We see the revenues
over time. With this trend going across the country, people are beginning
to understand that they can get a decent product for the same price as
their downtown," Griggs states.

Gross revenues have
increased from $94.7 million in 1995 to $148 million in 1999. The airport
is projected to gross about $153 million before the end of 2000.

MSP is also enjoying
the same success from its program. "The revenues tell us that we're
going in the right direction," Anderson states.

In 1994 gross revenue
was $23.5 million and in 1999 it increased to $95 million.

Rates and Charges
O'Hare structures its leases through a fixed fee format, charging about
$33 per sq. ft. The fee increases three percent each year. The airport
also charges a percentage of gross receipts and has a minimum guarantee.
"If they exceed the minimum then the percentage kicks in based on
a sales level. The minimum really fluctuates from base to base, but basically
on an annual basis. Eighty percent of whatever they paid us in the prior
year will become their new minimum," Griggs explains.

Paul Brown, executive
director of ARM, adds that the airport's objective here is not to boost
the minimum up to the highest minimum possible. "The minimum is the
safeguard to make sure that the city is guaranteed a certain amount of
revenue. We want as many people as possible to fit comfortably in the
percentage range," he states.

MSP does not charge
by square foot at the moment, but intends to in the future. Currently
the airport has a minimum annual guarantee measured against a percentage
of gross receipts. In the future, concession contracts for various spaces
will likely be a minimum of $55 per square foot, states Anderson. There
will also be a minimum that MSP will accept in rent from the tenants measured
against a percentage of gross receipts.

Anderson says they
will determine rates as the process develops by 2003, but at this time
they don't have any firm direction from the MSP commission on how they
will charge tenants.

Educating new comers
O'Hare has just started working with tenants that have not operated in
an airport before. "It's trial by operating. It takes a lot of hand-holding.
Everyone thinks that if they get a location at an airport they're going
to be a millionaire. They don't understand the constraints of delivering
goods...," Griggs explains.

The DOA is in the
process of developing a program to help ease new operators into the airport
and ensure success. "The last thing we want to do is bring someone
local to the environment and have them fail," Griggs says.

According to Brown,
airport management works with the operators to help them understand enplanements
and the flow of traffic. "It's a little like trying to teach someone
to drink from a firehose. It's either on or off... When it's on you have
to find a way to capture as much of it as you possibly can," Brown
states.

The airport has a
planning group on site that works with the city and the airlines to provide
periodic reports that summarize enplanement traffic.

"We take that
and break it down a step further into gate analysis and load factors and
try to figure out where the day peaks and valleys, so we can tell people
exactly between what two or three hours of the day they are going to experience
the 40 to 50 percent of their traffic that they need to capture a high
degree of in order for them to cover costs," Brown explains.

MSP, Anderson explains,
makes sure during the RFP process that the potential operator has an established
business. New operators such as Solo Squeeze, Anderson says, have a sub-agreement
with Host-Marriott. It is then Host's responsibility to monitor the performance
of the tenants, he says.

"We typically
have tried to make sure that the operator understands the dynamics of
the airport. They need to understand there's weather, crowds, and unique
times that deliveries are allowed at the airport ... and that they have
limited storage within their store," Wennerstrom explains.

"One of the scary
things that's unique to airports that isn't in shopping centers is that
we are truly a 24-7 location and they have to be able to hire, train,
motivate, and manage their business on a 24-7 basis...," Anderson
states.

Ensuring Customer
Service
Along with operations reviews, O'Hare's management team conducts walk-throughs
to make sure that places are open when they should be. The airport also
brings in secret shoppers three to four times a year, Griggs explains.

The concessions program
has also appointed three operations managers who conduct reviews twice
a month at every location. "It's kind of an interfaced style of property
management. We're there to make sure that they know we're out there watching
the store," Griggs states.

The airport also holds
monthly meetings with its tenants to address issues such as staffing and
loss prevention. "We're there to know the managers personally and
to get right in their faces in regards to store programs and to offer
them another set of eyes to make sure they're always thinking of customer
service and not worrying about some of the other things that can get in
the way of service," Brown explains. The department also works with
the Chicago Police Department to bring in speakers on theft prevention.

Management has also
developed a warning sheet that allows the operations managers to document
issues as they come up. These sheets are filed with the DOA to document
behavior patterns, Griggs explains.

"When you start
talking about trends then you can start talking about ways to fix things.

Because anyone can
avoid a spot incident... But when you know a trend and can document it,
it becomes much more of a cooperative effort," he says.

To ensure a high
level of customer service at MSP, its concessions managers conduct walk-throughs
as well. MSP is in the process of instituting its own secret shopper program.
However, at the moment it is relying on the individual store programs.

MSP also has its own
fair price program. "All of the retailers street price in the terminals,"
Wennerstrom says. "If there's a price comparison and they (customers)
found it at another location for a lower price, we will refund the difference,"
he states. He also notes that not all the food and beverage operations
street price currently, which he plans to address in 2004 when contracts
are up.

MSP also has a monthly
survey that calculates all airport-related complaints. Prior to and during
the concession remodeling the airport averaged 45 to 50 complaints, Anderson
says. It now averages five.

According to Wennerstrom,
one of the biggest complaints is the absence of the Taco Bell that operated
in the airport prior to the remodeling. Wennerstrom is confident he has
remedied a solution for those craving anything south of the border.

Arriving at the Green
Concourse is what Anderson refers to as a "hot" concept, Maui
Taco, contracted by Anton Airfood. "That should go a long way to
satisfy a passenger's desire for Mexican food and drinks. We are going
to introduce that to the terminal combined in a very unique setting,"
Wennerstrom says. Also accompanying Maui Taco will be TGI Friday's, Godfather's
Pizza, an A & W Restaurant, the locally-owned Franklin Street Bakery,
and the Good Earth Restaurant.

Room to move
Another issue ORD is struggling with is inventory distribution. "O'Hare
was never optimized for the delivery of food and beverage and retail,"
Brown notes. Though the airport is working on a solution, it remains a
constant issue because of its growing volume of concession locations.

Until the ’90s, ORD
had one food and beverage operator, which was located in the center of
the airport. As the airport's food and beverage locations expanded throughout
the terminals, new kitchen areas needed to be supplied. Brown notes that
for every 100-sq. ft. of space, 25-sq. ft. of storage is needed.

In its expansion project
the airport has had to move about 13,000- sq. ft. of office space occupied
by American Airlines to another area. "This is prime time space for
us. The amount of dollars that can be generated are about $6 to 7 million
in net revenue for just this one area," Griggs states.

O'Hare is considering
developing long-term, off-airport storage in the next five to seven years,
Brown says. An analysis on how to handle off-airport distribution will
be conducted over the next three months.

MSP has incorporated
storage into the design of its new concession areas. "In the new
RFPs that went out for the Green [concourse] and the expansion area, we
purposely designed and set aside designated square footage back stock
storage space adjacent to where the mass of the retail and food and beverage
was going to be, recognizing that problem," Anderson states.

The airport also encouraged
its tenants to design their stores with an office back stock area to prevent
deliveries from being left outside stores.

BRAND ADAPTATION
As airports have begun renovations and new construction to bring a taste
of their city to their airport, one noticeable trend has been the entrance
of brand name street stores into the airport arena. Staples and A & W
are two of those businesses.

Staples, Inc., which
opened its first airport store at Philadelphia International last year,
also has locations in Boston Logan International and soon, Newark.

Staples has found
most of its airport customers to be business travelers explains John Barton,
executive vice president for development.

"It's an extension
of our business to provide the office supplies and services that we offer
our customers in airports," he states.

One challenge for
Staples' airport locations was to select products that would sell well
in an airport. "We selected products for our airport stores that
are easy to carry out of the airport express stores and we gear them more
to the business person," Barton states.

Items such as digital
cameras and small electronics have been selling well, says Christina Aeres
Erridge, manager of media relations. One of the biggest selling items
in the airport locations has been the palm pilots. "They are leading
the chain in terms of units sold," she states.

Space constraints
have also presented a challenge for Staples as well. "Éyou want to
get as much product in there as possible. Some of the challenges were
how to display the product and still make it easy to shop for the consumer,"
Barton says.

A & W's first entry
into the airport arena was in Norfolk Airport with Anton Airfoods. Bill
Anton, president, Anton Airfoods, which has contracts with about 25 different
brands in airports, says one of the challenges in bringing national brands
into airports is the difference in the environment. "The first challenge
is for the brand of the franchise to realize that in a non-traditional
location everything is different. The space constraints are different,
the passenger dynamics are different," he states.

According to George
Goulson, executive vice president of development for A & W, another challenge
is the crowds. "The difference is that you have these huge rushes
throughout the day unlike the restaurants on the street where most of
your business is done around lunch or dinner ... it's absolutely dead
and in 15 minutes it's so crowded," he says.

Pricing and other
areas of the operation are handled the same as on the street, Goulson
states. "You're serving customer that you serve on the street, the
only difference is they're in an airport." he says.

Targeting a good workforce
Finding a stable workforce for concessions programs is one issue many
airports struggle with. Chicago O'Hare International (ORD) and Minneapolis-St.
Paul International (MSP) share their recruitment efforts.

ORD has been working
on some unique means to recruit employees into its concessions program.

Airport Retail Management
(ARM) is working with the DOA's project management team and community-based
organizations to recruit a reliable work force for the airport by offering
job fairs, where merchants can make attendees aware of the opportunities
at the airport.

"We want to make
it easier for our merchants to get a hold of people. We feel if they have
a stable and well-trained work force it only translates to higher customer
service," Paul Brown, executive director of ARM at ORD, states.

"We find that
on average, based on skill level and other things, they'd make an average
of one to two dollars more here an hour than on the street," he says.
ARM also discovered that people who start working at the airport stay
with the airport, Brown adds. One advantage for ORD is Chicago's public
transportation system, which has CTA rapid transit rail lines running
to ORD.

"We have a very
good public transportation system and what we found was that people who
live on the main lines are not aware of the types of opportunities that
are here," Brown says.

Targeting their recruitment
efforts to the areas on the transit line, ARM is hoping to educate people
about employment at the airport.

"Hopefully by
doing that we will create this culture of mainstay people that are contributors
over a long period of time and understand how we want to approach things
here," Brown says.

Recruiting a good
work force has been a different story at MSP. Its largest challenge on
the concessions side is finding a stable employee base. "We are in
competition with every mall near us. We have a unique unemployment rate
in this half of St. Paul," states Joe Anderson, MSP retail and concessions
commercial management and airline affairs at MSP.

Concession operators
have conducted job fairs and offer an employee incentive program that
offers employees bonuses when someone they recommend is hired.

Transportation is
also a concern. Many employees have to pay for parking; however, retailers
are getting more aggressive about paying the monthly fee as a benefit
for the employee, Anderson notes. "We're trying to do the same things
everyone else is doing, and we're still having the same problems,"
he says.

Though the city has
a bus line that runs to the airport, MSP is hopeful that a proposed Light
Rail Transit system (LRT) may improve transportation to the airport for
travelers and potential employees. The LRT would make a stop at MSP and
end in the vicinity of the nearby Mall of America, Wennerstrom states.

Host Marriott acquired by Autogrill
Airport master concessionaire Host Marriott Services, now HMSHost, was
acquired by Autogrill, an Italian highway restaurant company controlled
by apparel retailer Benetton. The merger is expected to expand the company's
business to include North America, Europe, Australia, and Asia.

CAPS Chicago Field
Museum Store
Eric Griggs, deputy commissioner, Chicago DOA Concessions
American Kite Flyers Association Display
Mainstreet of Northstar Crossing
Chili's Too
Joe Anderson (left), MSP retail and concession management and airline
affairs, and Gordon Wennerstrom, director of MSP commercial management
and airline affairs, with the Minnesota Shopping Center Association's
STARR Award for best redevelopment/renovation/restoration.
A young boy calls for his plane at ORD's Chicago Children's Museum's Kids
on the Fly play area
Paul Brown, executive director of ARM
Food Court area at ORD
A tribute to Lt. Cmdr. Edward "Butch" O'Hare, resides in the
ticketing area of ORD, named after the naval fighter pilot. O'Hare was
awarded many honors throughout his military career including the U.S.
Congressional Medal of Honor for his decisive attack on enemy fighters
which saved the U.S.S. Lexington.
Sola Squeeze, a locally owned natural fruit and juice, food and beverage
operation at MSP Locally owned concept, the Minnesota store, greets guests
with its moose.